Supply Chain and Logistics Management and Strategy: HP - Assignment Example

1. Review of HP’s Strategic decision to employ a 3PL provider a) Inventory Management A third party logistics provider would enable efficient inventory management for HP. Since, the warehouses of a large 3PL provider are spread widely, the distance from retail outlets to warehouses gets reduced and so lower levels of inventories need to be maintained at warehouses and retail outlets. b) Lead Times A 3PL provider would provide HP with a greater flexibility to meet customer demand and to reduce lead time. Since warehouses are closer and widely spread, there are minimum chances of stock-outs. Even if stock-outs occur, the stock can be replenished quickly due to better transportation facilities and accessible inventory locations. c) Availability The percentage availability of stock at retail outlets increases due to less stock outs and short lead times. d) Resource management Third party logistics companies have the capability to customize services according to the business needs of HP. While, it may not be possible for HP to internally deploy best resources for all supply chain operations, outsourcing the same to a good 3PL would ensure the same. In addition, there is a greater accountability and a willingness to please the client by the 3PL (Sullivan). e) Core competencies Third party logistics would also enable HP to concentrate on its core competency which is manufacturing or assembling of high quality computing technology products. Similarly, 3PLs whose core competency is in logistics would be able to better handle the logistics of HP. Therefore, a win-win situation is created for both the partners. However, due to a concentration on its core competency, there is a risk of HP losing control over its operations in the long term. Also, HP needs to make it sure that the 3PL provider should not have strategic alliances with a competitor as it would lead to conflict of interest (The Ultimate Logistics Guide). f) Cost Management One of the biggest advantages of using third party logistics vendor comes from the realization of economies of scale. Third party logistics vendors generally have large transportation fleet and warehouses since they provide these services to a number of companies. This results in effective cost management. In addition, there are also cost savings due to economies of scope. Economies of scope are realized because common resources can be used for many varieties of products within HP or between firms due to involvement of 3PL vendors (Nemoto, Tezuka). Considerable costs are also saved in capital investments in warehouses, logistics and transportation. The 3PL providers can further spread the financial risks by outsourcing to subcontractors and Fourth party logistic providers (4PL). g) Logistics information and product flow Having mentioned a lot of savings, the probability of negative impacts can’t be ignored. If HP is not able to efficiently manage the relationship, it may lead to a huge reputation loss. It is so because many of the outsourced tasks are customer facing and any errors may lead to embarrassment. Also many times, such relationships fail due to miscommunication between the two parties. 2. Tactics which can be used by a focal company A focal firm can leverage its supply chain through several means in order to gain competitive advantage and to ensure differentiation of its products and services. The first of these strategies is strategic sourcing. It is a method of reducing the total cost of a product or service while maintaining same quality level. In strategic sourcing, a manageable diverse set of suppliers is chosen keeping in view the focal firm’s sourcing strategies. This enables aggressive negotiation through RFI (Request for Information) and RFP (Request for Proposal) modes. The processes and metrics are designed in such a way so that the use of strategic sourcing becomes everlasting. The second tactic used by focal firms is the use of information technology. The focal firm is connected to all its suppliers and distributors through advanced ERP and SCM systems. This enables keeping a bird’s eye view of the entire supply chain operations. The real time data is available and scope of frauds and inefficiencies is drastically reduced. This leads to a sustainable competitive advantage for the firms. The organizations which use franchisee model for selling especially make effective use of technology in their supply chains. A third tactic is to outsource the entire logistics operations to Third and Fourth party logistics providers which results in considerable cost savings for the focal firm. It also increases visibility and velocity of the supply chain. Another tactic used by focal firms to leverage their supply chains is to form strategic alliances with their main suppliers. This involves taking important strategic decisions with their consent and making long term contracts with them (Brichi, 2004). Chevron and Texaco formed a strategic alliance a few years ago due which savings of $ 1 billion were achieved. The merged firm used strategic sourcing, information technology and third party outsourcing in an effective way to achieve these results (Brichi, 2004). It makes sense for organizations to align their supply chain strategy with their business strategy in order to gain differentiation and competitive advantage. A perfect example of this is Dell. Dell wanted to differentiate itself through great customer service; low cost and low lead times. With the emergence of internet, Dell made huge changes in its supply chain strategy. It constructed a network of logistics, inventory and manufacturing operators. It employed a large courier company to assemble its components which came from different parts of the world where they were available at lowest cost. In this way, the alignment of business strategy with supply chain strategy enabled Dell to gain a market leadership position (UPS, 2005). 3. Impact of Supply & Demand Equation on Supply Chain Management The supply demand equation has a very significant impact on supply chain management. In fact most of the planning is focused on managing the demand supply equation or mismatch. The problem is how to schedule production and distribution of goods with maximum capacity utilization and minimum inventory when the demand is highly variable. There may be products whose demand is very low but fluctuates a lot while there may be other products with a high demand and small fluctuations. Treating both types of products at par can be detrimental for the supply chain. An imbalance in the demand supply equation leads to a number of supply chain issues. Highly unpredictable demand leads to excessive pile up of inventory. Sales and Operations planning which is based on forecasting is impacted because the historical data is insufficient to make accurate forecasts. In cases of products with small lifecycles, there are risks of obsolescence as well. In addition, the customer service is also impacted in such an unpredictable environment because the probability of stock-outs increases. In such a scenario, the companies need to come out with strategies to manipulate the demand supply equations to their advantage. Firstly they need to take into account variability of the demand along with its volume. Hence products must be classified on both the dimensions rather than traditional ABC analysis. Secondly, the companies need to include a combination of manufacturing strategies in their operations rather than a uniform strategy for all products. Thus, high volume products should be made to stock while high value and low volume products should be made to order (Vitasek et. al., 2003). Thirdly, the organizations need to follow a dual supply chain strategy. For functional products, the demand is fairly constant and can be predicted easily. Hence, the requirements of supply chain for functional products are low cost, efficiency and availability. On the contrary, for innovative products, the demand is seasonal and fluctuating. Hence, the supply chain should be more effective and agile. The costs incurred may be higher as such products command a premium. For example, Zara, a garments company follows dual supply chain strategy. Its normal apparels are sold through a cost effective and efficient supply chain while there is a different network for designer garments (Chopra,Meindl, 2010) 4. Factors to be taken into account while constructing supply chain for electronic products While designing a supply chain for an electronic product, a number of factors have to be considered. The first factor is the government policies of the nation where manufacturing facilities are to be established or the distribution network is to be built. For example, in some nations there may be a restriction on foreign direct investment or the investment can only be made in collaboration with a domestic firm. In addition, the political stability has also to be taken into account before such decisions are taken. The second factor is the availability of resources such as land, capital and labor. This requires a deep study of land acquisition costs & laws, wage rates, employment conditions and location analysis. The third factor is the taxation structures, policies for incentives, subsidies and variations across different regions. Also the tariff rates for import and export of goods need to be studied. The policies and regulations regarding foreign exchange and investment are also significant. The fourth factor is the study of local culture, characteristics of people, their tastes and preferences. This is especially relevant for the downstream activities in the supply chain where customer satisfaction is very important. In some countries, laptops may be the norm while in others there may still be a scope for desktop penetration. Another important factor is the situation of infrastructure and adaptation of technology in a given country. These factors are more favorable in developed countries. However labor is available at lower costs in developing countries. Hence, the required trade-offs must be considered. 5. References Nemoto,Toshinoro;Tezuka, Koichiro, ‘Advantage of Third Party Logistics in Supply Chain Management’, Hermes-IR Sullivan,Connor R. ‘The Benefits of Third-Party Logistics’, Available online from ‘Advantages and Disadvantages of Third party Logistics’, The Ultimate Logistics Guide Brichi, Audrey G. 2004, ‘The Inclusive Supply Chain – A Competitive Advantage: Strategies for Minority and Women Business Sourcing’, 89th Annual International Supply Management Conference, April 2004 ‘Supply Chain Strategy: The importance of aligning your strategies’ 2005, UPS Supply Chain Solutions Vitasek, Manrodt, Kelly 2003, ‘Solving the Supply-Demand Mismatch’, Supply Chain Management Review Chopra, Sunil; Meindl Peter 2010, ‘Supply Chain Management’, Pearson Education, 4th Edition Read More